Keystone's Inflation-Deflation Indicator Signals DISINFLATION

Before the new trading week gets fully underway, let's get a reading on the inflation-deflation debate.

CRB/10-Yr Price = 295.00/101.359 = 2.91

Over 4 = Inflation
Between 3 and 4 = Neutral; inflationists and deflationists fight it out
Between 2.9 and 3.0 = Disinflation
Under 2.90 = Deflation

Thus, 2.91 places the U.S. economy currently in Disinflation a hair away from falling into Deflation. Watch the CRB closely since further drops would certainly drop the economy into Deflation.  A CRB around 270 or lower should prompt Chairman Bernanke to act with QE3 so use that as your guide. In the summer of 2010 when Bernanke saved the markets from going over the falls with QE2, he intervened at about 2.5-ish for Keystone's Indicator so keep this in mind as well moving forward.

Interestingly, a way around the ECB single mandate of price stability, and despite what the ECB may have stated thus far, a logical path for the European debt crisis is for the ECB to use a bazooka and it will be justified by Europe falling into Deflation like the U.S. Once Deflation shows its ugly face, this will eliminate European nations having to spend time amending treaties and so forth.  Deflation will simply provide the reason for the ECB and European nations to act similar to the Fed in early 2009.

Note Added 12/19/11 at 10:21 AM EST: Here's a check on the latest numbers. 295.46/101.359 = 2.91. The U.S. economy remains mired in DISINFLATION on the verge of falling into Deflation.

Note Added 12/19/11 at 1:24 PM EST: 2.92. The U.S. economy remains mired in DISINFLATION on the verge of falling into Deflation.

Note Added 12/19/11 at 7:17 PM EST: 2.91. The U.S. economy remains mired in DISINFLATION on the verge of falling into Deflation.